Q: What's the latest on the debt service payment on the Lytton Gardens bonds?
A: We anticipate that, ultimately, Lytton Gardens will pay the $148,000 back, but not necessarily in the next year or so. Hopefully, they will be able to turn the business around by providing a different mix of services.
Q: Last February you said Los Medanos Community Hospital of Pittsburg, Calif., also is having financial troubles. Will you need to tap into the loan fund for Los Medanos?
A: We may or may not have to make a payment from the fund for Los Medanos. Our belief is that the property is worth in excess of the approximately $8 million [of long-term obligations] outstanding. But, say it's worth $7.5 million. Then the ultimate loss to the fund would be $500,000. Certainly the fund can absorb a $500,000 loss.
Q: You also mentioned in February that Van Nuys, Calif.-based Health Care Delivery Services has a $9.9 million debt obligation backed by CalMortgage insurance that is in trouble.
A: The status has not changed substantially since it was originally identified.
Q: Any other troubled loans on the horizon?
A: There has been a letter written by Butte Valley-Tulelake Rural Health Clinic project [in Dorris, Calif.], The letter says if their reimbursements continue to decrease, they may end up having to close. That is an approximately $1 million project [insured by Cal-Mortgage in 1992].
Q: So far, Triad's debt service reserve fund has provided certificate of participation holders their principal and interest payments. At some point will Cal-Mortgage need to dip into its loan fund to bail out Triad?
A: Triad's debt service reserve account is adequate to cover the payment due in August. There will still be some funds for the next payment due [in January 1995]. At that point, the insurance fund would make up the shortfall, and then continue to make up shortfalls thereafter, whatever they are.
Q: So once Triad's debt service reserve fund is exhausted, Cal-Mortgage will be forced to pay the COP interest and principal from now on?
A: My sense [is the Cal-Mortgage loan fund] will probably be [used to pay debt service] for the next 28 to 30 years. I don't think Triad will ever be in the position to make the total amount of debt service to pay back the whole $167 million. However, there is no reason we cannot restructure the plan. Even though bondholders would be paid off in 30 years, the corporation would still owe money to the state, so the corporation could continue to pay beyond the term of the bonds.
Q: Would you consider an early redemption of the Triad COPs?
A: Why do I want to pay somebody $167 million, when I don't presently have it in the loan fund in any event? In fact, I can pay the [debt service] out of current revenues. No one has given me a reason -- economic, business, tax, or anything else I can think of- that would cause us to want to pay out $167 million today.
Q: So you will not ~all the Triad COPs or any other troubled issues?
A: Since the first time we were asked that question, I have stated .that we have no intention-to call Technically, I don't believe we can call.
Q: Now that the moratorium on new loan insurance applications is lifted, how many will the loan advisory committee review in coming months?
A: We expect to see 20 applications in the next two to three months. Historically, we've done 30 to 40 applications a year.
Q: Does the loan advisory committee have the final word on whether CalMortgage grants loan insurance?
A: By definition, it is an advisory committee. It advises David Werdeear, the director [of the office of statewide health planning and development, Cal-Mortgage's parent agency]. Dr. Werdegar has indicated he is not going to go against the advice of the committee.
Q: A 1992 actuarial study by the Arthur D. Little consulting firm said the Cal-Mortgage health facility construction loan fund at the time was underfunded by about $59 million. If so, why is Cal-Mortgage planning to provide insurance to new projects?
A: If we were a private insurance company that didn't have the state of California behind us, then we would be underfunded, based on that actuarial study. The state of California is behind us; we are not a private insurance company. We concluded that the reserves are at a prudent level, and adequately funded to accommodate new loan insurance.
Q: Earlier this month you released a memorandum of understanding that explains how payments wouM be made from the loan fund. Will you provide a similar memo on the issuance of debentures?
A: It is difficult to do a memorandum for a concept that you don't anticipate ever happening. If issuing debentures does happen, it won't be in the foreseeable future. We are looking at [writing a memorandum]. I am hearing rumors that it may not be all that important to the investment community, anyway. If that is the case, we will spend our time working on other issues.
Q: Some investors say Cal-Mortgage has not answered technical questions about how it would issue debentures.
A: I am not sure a [memo of understanding] would resolve any technical questions. The MOU would need to address at what point do we issue debentures. We need to think through if there is a way to define that. If I define that today, do I know what all of the circumstances will be in 10 years when somebody decides it is necessary to issue them -- assuming they ever do. Frankly, to the extent the insurance fund has adequate reserves in it, there will never be a need to issue debentures.
Q: Several investors have said CalMortgage needs to do a better job of communicating developments to them. How do you respond?
A: If I were an investor in Cal-Mortgage paper, I would be concerned about whether Cal-Mortgage is going to pay or not. As long as Cal-Mortgage is going to pay timely, pursuant to the documents, Cal-Mortgage is fully performing on its contract. That is what you are buying from us. You are buying paper insured by us.
Lytton Gardens is a case in point. We did make a payment to the bondholders [from the loan fund]. The bondholders did not suffer as a result of the shortfall.
Q: Could anything convince you to change your approach to disclosure?
A: You are asking me to potentially divulge litigation strategy to the public. When we're talking about a de: fault situation, and I'm getting ready to deliver a default letter [to the issuer], I'm not prepared to tell the investment market [in advance]. Nor am I going to tell the investment public, 'By the way, three weeks from now I am going to file a foreclosure action.'
On the contrary, we will file it when we are ready to file it without disclosing it to anyone other than our attorneys. That is litigation strategy to try and protect the value of the asset for the bondholders. So, if you would prefer that I diminish the value of the asset in order to give [investors] more information, that doesn't make sense to me.
Q: The Securities and Exchange Commission issued an interpretire release in March that says issuers shouM state clearly in official statements whether they intend to provide ongoing disclosure. WouM Cal-Mortgage consider putting stuff in a central national repository?
A: I'm not sure what you mean by 'stuff.' Copies of complaints that we file? Copies of proceedings filed by corporations for receivership? First off, they're now available from the courts. Obviously, they are public records and immediately available. Second, we've provided public documents of that nature to anyone who has asked for them. Third, we give the information to Standard & Poor's. Fourth, The Bond Buyer generally calls me within 24 hours of these things happening, and you put it into print within 48 hours. If there is a need for some sort of a repository, we would be happy to consider it. Our office, for all intents and purposes, is a repository because we're required by law to keep everything.
